Mises Wire

Gustavus Swift: Capitalist Hero

My favorite tradition as a Summer Research Fellow at the Mises Institute is what we affectionately call “Steak Sunday.” Every Sunday evening, we fire up a grill and cook steak (or, for at least one of us, asparagus). In preparation for our weekly tradition, we make the customary trip to Kroger where we can select our preferred cut from a display of meat that is aesthetically lain out for customer inspection. Naturally, the meats are organized by animal and cut, but the purpose of the display is to give customers the opportunity to admire the quality of the meat being sold.

In Hayekian terms, this practice is a way of coordinating information, partly in the form of an advertisement: “See for yourself how high quality our cuts of meat are!” Modern shoppers are accustomed to these grocery-store displays, but this was not always the way meat was sold. The history of this development is also the history of another unsung capitalist hero: Gustavus Swift.

For most of the nineteenth century, beef was something of a delicacy. The most common meat for most people was pork, for various reasons. Pigs were lower maintenance for people to raise for personal consumption, and for urban citizens, they served as street cleaners. For the meat industry, salt was used as a preservative, but people preferred salted pork to salted beef. So for beef to find its way to the market, there had to be taken on a long and costly cattle drive from Texas to Kansas, where they would be shipped by train to Chicago. But instead of being butchered and preserved at Chicago’s famous Union Stock Yard, they were held until they could be shipped further east where they were butchered locally.

In those days, people did not get to inspect their cuts of meat before purchase. Instead, they walked into the butcher shop, specified the cut they wanted to purchase, and waited for the butcher to bring them their wrapped meat after cutting it out of sight. This was sensible. We may appreciate the aesthetics of fresh cuts of neatly arranged meat, but — even then — few people cared to watch a butcher conduct his work on a recently slaughtered animal carcass.

But the problem was that shipping live cattle was costly. Not only can cows not be packed as efficiently on a freight train, but they also carried with them a lot of waste product (like their bones and internal organs) which meant using more cargo space and fuel to transport. It was an expensive process of production that translated into higher consumer prices. Eating beef was a luxury for most people.

In 1875, Gustavus Swift moved to Chicago believing that he could do better. He had showed an early entrepreneurial spirit when, as a fourteen-year-old farm boy, he purchased his own steers in Boston, cut them up himself, and sold the beef for personal profit. As he grew into adulthood, he established his own butcher shops, where he did business the traditional and costly way. When he went to Chicago, he had some new ideas.

His original idea — like many great entrepreneurs — was a disaster. He hoped to use his experience to establish himself as a middle-man — an arbitrageur and salesman – for cattle he would personally select in Chicago and bring back to New England for sale to butcher shops. But the cost of shipping two carloads of cattle was too high, and he took a hit.

Undeterred, the thirty-eight-year-old Swift decided to look into refrigerated cars. The primary difference between the hog industry and the cattle industry at the time was that people were happy with cured pork, but they wanted their beef fresh. If Swift could figure out a way to keep pre-cut beef cold long enough to make the trip to New England without spoiling, he could drastically cut the costs of transportation. Pre-cut meat would pack more efficiently, and he wouldn’t have to take with him the forty-three percent of the cow that was unmarketable.

A version of a refrigerated car had already been invented by another entrepreneur, George Hammond, who came up with his design in 1868 to ship fruit (another luxury item). It wasn’t as well-designed for beef, so Swift had to figure out the appropriate modifications. The problem was not easily solvable; other inventors had already spent years trying to do the same thing.

And again, Swift’s early ideas failed. One major challenge was finding a way to keep the meat from coming into contact with the ice, which would spoil and discolor it. This meant that he couldn’t simply pack ice in the same packaging as the meat. To solve this problem, Swift tried hanging the beef from railings, which seemed to work well enough until the train took a sharp enough curve to throw it off balance and, potentially, even cause a wreck. No good. The most obvious solution was to simply wrap the meat and pack it strategically in with the ice, but this had the problem of unevenly cooling the meat, again leaving it susceptible to spoilage.

Finally, Swift found his answer. He designed a new type of refrigerated car that had specially contained, ventilated ice boxes at either end of the car, with the meat packed in between them. While being shipped, the doors to the car would be left open so that cool air would constantly flow against the sides of the meat. The car worked, and it allowed for much cheaper shipments of fresh meat.

But Swift faced yet another hurdle: the railroad companies. He hoped that they would invest in the refrigerated cars themselves, in order to ship his (and potentially future competitors’) beef. They refused. Historians attribute this to the vested interest railroads had already placed in developing stockyards at various depots. The obstinate refusal to undertake profitable cargo in order to keep alive a less profitable investment is possible, but it seems unlikely. A more likely explanation is that the conservative railroads had little incentive in pouring funds into an investment opportunity that had no guarantee of success, especially after so many other failed attempts. Swift would have to look elsewhere.

Fortunately, there was one railroad — the Canadian Grand Trunk Railroad — that ran some lines in the northern states. For most products, the northern route was inefficient — it was certainly less direct than the railroads who had refused to invest in Swift’s innovation. But the railroad ran farther north than other lines. With Swift’s dependence on cold winds keeping his beef from spoiling, this was a benefit that offset the otherwise inefficient route. More importantly, it was the only railroad that would accept his cargo. Finally, Swift was able to successfully bring his beef to New England.

The story doesn’t end there, though. You can bring a product to market, but you can’t make people buy, and that is exactly the new problem that Swift had to face. Beef preserved through refrigeration was new — it is difficult for our modern perspective to grasp the suspicions that people had for it. As Swift’s son Louis put it in his biography of his father, “The idea of eating meat a week or more after it had been killed met with a nasty-nice horror.”1 Even though Swift could profitably sell his beef at upwards of ten percent below locally butchered meat in some cases, people simply didn’t want to risk their health for a discount.

But within a few years, Swift and other meat-packers who had followed in his footsteps, were actually able to find buyers for the product selling at prices up to five percent more than locally butchered meat in some places. What caused the turn-around?

Swift’s last innovation is possibly his most brilliant, as it is one that is still employed today in modern grocery stores. He instructed his employees to cut the meat as cosmetically as they could, display the cuts artfully, and — most importantly — let the customer see what they were buying. Today, it seems like common sense, but at the time, this was a wild idea.

Not only could customers see for themselves that the meat was still fresh, but they could choose between various cuts of meat, rather than taking whatever the butcher brought them. Creative displays also popularized types of meat that were once unappealing, such as chuck and round. Swift brought higher quality, lower prices, and more customer choice in beef to New England. After some time, beef sold this way was sufficiently preferred over locally butchered meat that customers were (in New York, at least, where the market was the largest) willing to actually pay higher prices to have their pick of cuts.

The road to making beef a standard part of the American diet was not done yet. After Swift revolutionized the beef industry, other innovative entrepreneurs built on his ideas — things like refrigerated warehouses and product development for cow waste-products — to drive down the price of beef and compete with Swift. But for all his innovations, the one that appears immortal is the seemingly simple idea of letting customers see the product and choose what they wanted.